THE recently-announced gold-backed digital tokens will neither strengthen the local currency nor reduce chronic inflation because of waning market confidence and trust in government, an economic watchdog has said.
The central bank introduced the tokens last week in an effort to reduce demand for foreign cash, and support the domestic currency which has significantly lost its value since the beginning of the year.
On Thursday, the Reserve Bank of Zimbabwe (RBZ) set the minimum application for gold-backed tokens at US$10 and US$5 000 for individuals and corporations, respectively, as it rolls out the digital asset.
The gold tokens are going onto the market today.
But the Zimbabwe Coalition on Debt and Development (Zimcodd) has said the use of gold or its variants will not improve the fragility of the local currency and resultant chronic inflation.
“This is mainly due to dwindling market confidence and trust in government which consistently exhibits policy inconsistencies and a lack of transparency and accountability,” Zimcodd said.
“Also, there is limited political will to fully implement direly needed economic and structural reforms to strengthen institutional and regulatory framework, curb leakages, improve social fairness and inclusion, thwart fiscal indiscipline and impunity, and eliminate prevailing excessive pricing distortions inhibiting market competition and innovation.
“All these factors, if unaddressed, will militate against the attainment of durable stability in Zimbabwe.”
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The economic watchdog said RBZ should use advanced technologies such as distributed ledger technology which provide full transparency, efficiency of transaction, and are difficult to disrupt.
“Technology also ensures that all transactions are safely recorded as no documents can be falsified since all data is immutable — it cannot be modified by any person,” Zimcodd added.
“The use of traditional database systems which are centralised is highly prone to manipulation, and human error, and may be hacked. More so, digital gold tokens will succeed if RBZ embraces auditing of gold reserves (backing the digital tokens) in its vaults by reputable and independent institutions as well as guard against leakages from corruption and theft.”
In a prospectus for the gold-backed tokens released last Thursday, the central bank announced that the digital tokens will be issued in milligrammes and one thousandth of a gramme, through custodian banks within the Central Securities Depository payment system.
The bank further announced that the transfer of the digital tokens will be done through the custodial banks which will split allotments to its various customers’ accounts.
These gold tokens will be backed by the physical gold that will be kept at RBZ.
“The pricing of the digital tokens in foreign currency shall remain the same as the pricing model of the physical gold coins as informed or guided by the international gold price as determined by the London Bullion Market Association (LBMA) PM fix,” the RBZ said.
Payment for the digital tokens or physical gold coins in local currency shall be at a 20% margin above the willing-buyer willing-seller interbank mid-rate.
RBZ said the full payment for allotted digital tokens would be made on the settlement date through the normal payment systems.
As with actual gold coins, the digital tokens can be cashed in after a 180-day vesting period at the international gold price as set by the LBMA’s PM fix.
Further, like the physical gold coins, payment for this digital asset can be in local or foreign currency.
The designated custodial banks are responsible for processing all payments.
“Banks will create dedicated or specific accounts for the holding of the gold-backed digital tokens (e-gold wallets or e-gold cards). Holders of physical gold coins, at their discretion, will be able to exchange or convert, through the banking system, the physical gold coins into gold-backed digital tokens.”
The central bank said the digital tokens held in either e-gold wallets or e-gold cards would be tradable and capable of facilitating person-to-person and person-to-business transactions and settlement.
